Case 6

Atlantic Airlines

Amount issued
Period (years)
Yield
Treasury yield
Corporate yield
Nominal

$100,000,000
20
12%
4%
6%
$1,000

1
Yield
Period (years)
Price

15%
18
$816.16

End of the period

Price of Atlantic Airlines' bond

0
$812

2
Atlantic Airlines
Calculation of actual yield for Atlantic airlines' bonds for 2 years
Yield
2.94%

As actual yield for Alanti Airlines' bonds is 2.94% less than yield of treasury bonds (4%), treasury bonds are m
3
Yield
Period (years)
Price

13%
18
$931.60

End of the period

Price of Atlantic Airlines' bond

0
$930

Calculation of actual yield for Atlantic airlines' bonds for 2 years

Yield
8.72%

In this case actual yield for Alanti Airlines' bonds is 8.75% more than yield of treasury bonds (4%), so 8% ine
4

Reducing yield for the bonds means that required rate of return for this bonds has decreased, this means that
esimated at the issue date. In such case price of the bonds will increase and investors who hold the bonds bef
price of the bonds.

If Tom holds bonds to the maturity date, yield changes have no effect on his investment. Yield change causes
will not sell the bonds for any reason his investment will remain in the same conditions and his benefit will r

1
$814

2
$816

3
$819

4
$821

5
$825

6
$828

7
$833

8
$837

9
$843

4
$934

5
$935

6
$937

7
$939

8
$941

9
$943

), treasury bonds are more favourable

1
$931

2
$932

3
$933

bonds (4%), so 8% inerest advantage covers the loss in value

eased, this means that investors consider the bonds less risky than it was
ho hold the bonds before yield decreased will benefit from the enhanced

t. Yield change causes price change so if Tom has strictly decided that he
s and his benefit will remain unchanged.

10
$849

11
$857

12
$865

13
$875

14
$886

15
$899

16
$914

17
$932

18
$951

10
$946

11
$949

12
$952

13
$956

14
$960

15
$965

16
$970

17
$976

18
$983

19
$974

20
$1,000

19
$991

20
$1,000

1)
2)
3)
4)
5)

Team Members:
Natia Ghviniashvili
Nino Machavariani
Erekle Zurmukhtashvili
Nikoloz Kevkhishvili
Giorgi Burdiashvili